Employees rush to make their own investment choices ahead of MPF reform deadline

630,000 MPF accounts yet to make any investment choices of their own, a figure worth HK$11bn, down from 1.05m accounts valued at HK$18bn in November

PUBLISHED : Tuesday, 24 January, 2017, 11:59am
UPDATED : Tuesday, 14 March, 2017, 12:01pm

Thousands of employees have indicated they are still planning how to invest their Mandatory Provident Fund contributions, just three months before the biggest reform of the system to date, which will see the introduction of a low-fee default investment option in April, that will automatically invest funds for anyone not specifying which they want to those.

MPFA executive director and chief corporate affairs officer Cheng Yan-chee told an annual media briefing on Monday, that the 630,000 active MPF employee accounts have not yet made any investment choices of their own, a figure worth HK$11 billion, down from 1.05 million accounts valued at HK$18 billion in November.

“We have seen many employees make their own investment choices, or they have told their MPF providers that they plan to make a choice in the near term,” he said.

“This is because of the upcoming reform in April by the MPF providers and we would urge members to use the facility them, to make their own investment choices,” he said.

The MPFA announced last April that it planned to move into what it called a simpler proposed “core fund reform”, which it claimed would slash the pension fund’s fees and yield more stable returns.

We have seen many employees make their own the investment choices, or they have told their MPF providers that they plan to make a choice in the near term
Cheng Yan-chee, MPFA executive director and chief corporate affairs officer, MPFA

It will require all 18 MPF providers to offer members a default investment fund option for each MPF scheme offered to employees, who do not choose or have forgotten to chose how to invest their MPF.

Cheng said if the 630,000 employees still do noy choose how to invest that combined HK$11 billion, they would all be transferred to the default investment fund option.

The new fund will have a 0.75 per cent fee cap and is claimed to offer a less risky option, using a simpler investment strategy, investing in bond and stocks, with the proportion of stocks reduced as members grow older.

At present, Hong Kong does not have a standard default arrangement and fund providers decide how to invest MPF funds which many have claimed have led to high management fees or have seen investments ploughed into risky products.

The charge was on average 1.5 per cent, which is higher than any developed overseas market, which generally charge between 0.5 per cent to 0.85 per cent.

“We hope the reform in April will cut MPF fees and improve the overall image and popularity of the fund,” Cheng said.

We hope the reform in April will cut MPF fees and improve the overall image and popularity of the fund
Cheng Yan-chee, MPFA executive director and chief corporate affairs officer, MPFA

The MPFA is also now studying the launch of an e-MPF to allow online transactions to be made by its 2.8 million members and self-employed people enrolled in the scheme to manage, Cheng said.

He insisted the MPFA will fully co-operate with the Hong Kong Government in advancing the scheme, which last week announced plans to cancel the controversial offset mechanism, under which employers can use their contribution in the MPF for their staff to offset their severance and long-service payments.

Chief Secretary Matthew Cheung Kin-chung said last week that a concrete proposal would be submitted to the Executive Council for approval in June.

Cheng said over the past 15 years, HK$31.3 billion of MPF money has been used to offset, while the annual withdraw amounts have represented about 25 per cent of total withdraws.

“We welcome the cancellation of the offset arrangement, as this has been a major criticism of the MPF,” he said.

He said if the offset was cancelled, the MPF would consider introducing full convertibility to allow employees to choose their own mix of employee contributions.

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